Thats the kind of thing that I am talking about, except performing some real-time sanity checking should be possible, the client already does it for every invisible wall players encounter. One thing I have to say though about the other information you gave about the hacks essentially editing, or reconstructing data packets en-route to the server. There is zero excuse for allowing that to occur.
The communication between the game and client should be secure enough that without some decent effort it's not possible to perform live packet modification. Hell, even if the encryption is hacked and the key reversed, we have sufficiently frequent patches to allow the encryption scheme to morph each time, as well as changing the keys. Not securing the communication between client and server is a pretty horrible data security failure.
From a database point of view, the coordinate system should have validation rules on the coordinates themselves, to do exactly what you stated. I also agree that the player movement and teleportation commands could and should be validated off-line by a system that has no impact on the game servers. As you say, violations detected there should result in account suspension. Hell, every reported bot/cheat should be put through that ringer at least, to facilitate faster/more accurate detection.
I'm not familiar with other MMO's and how they do their thing, but in the world of corporate databases, systems, networks and data security, the lack of security and integrity in the data seen here would be inexcusable.
